Affordable fuel boosts economy
The price of oil has dropped 40 percent since June, and the price of gasoline throughout the country is at its lowest point in more than four years.
Michigan is faring even better than most states, with several cities topping nationwide charts for lowest fuel prices. At Detroit's North American International Auto Show this week and next, auto companies are highlighting vehicles that require a bit more gasoline than green cars pushed in past years. That includes performance vehicles, as well as new generation SUVs and trucks, which sold well last year.
Consumers' response to the surprising drop in the price of gasoline differs from comments President Barack Obama recently made to The Detroit News — that "folks should enjoy" the lower prices, but not get too comfortable with them.
While the market might push prices back up, the wrong response to the abundance of domestic oil and gas would be to instill policies that make energy production more challenging and expensive, and that abuse the economic relief lower prices are giving consumers.
The president's assumption that domestic energy scarcity will return despite near-term forecasts otherwise, or that environmental concerns dominate consumers' car-buying decisions, will be detrimental if it turns into more policy.
An analysis from the American Petroleum Institute contends the 60-cent drop in the price of a gallon of gas by end of 2014 had the equivalent economic impact on the U.S. economy of a one-time tax cut of between $100 billion and $125 billion.
A different study estimates that for every 1-cent drop in the retail price of gasoline for a year, American consumers save $1.2 billion.
Stagnant global demand is partly responsible for the dramatic decrease in oil prices. But just as impactful is the surge in U.S. oil production from new technologies like hydraulic fracturing — commonly called "fracking" — that have made oil extraction easier and safer.
Policymakers must also become more honest about consumer demand. It was particularly ironic that Obama's recent visit to Metro Detroit took him to a Ford Motor Co. factory that is temporarily shuttered in Wayne because of lagging demand for the small, fuel-efficient cars it produces.
Meanwhile, the Renewable Fuel Standard and other mileage requirements should be reassessed in light of falling fuel prices and rising supplies.
The accelerated technology development necessitated by the mandates make vehicles more expensive and less attractive to consumers. The standards, particularly for ethanol, have also proven ineffective in reducing overall carbon emissions.
Michigan residents and businesses benefit from affordable fuel.
Pro-growth policies should encourage sustaining the low-price trend.